Germany's CDU And SPD Parties Embroiled In Tax Row

by Ulrika Lomas, Tax-News.com, Brussels

23 September 2009

In the run up to the forthcoming German elections, the country’s two main political parties, the Christian Democratic Union Party (CDU) and the Social Democratic Party (SPD), have once again become embroiled in a bitter tax row.

Tensions have mounted recently between the two main political parties as the countdown to Election Day begins. While the CDU have accused the Social Democrats of planning massive tax rises, the SPD have criticized the Union’s tax concept as “utopian.”

Vehemently rejecting the idea of implementing tax cuts following the September elections, the SPD remain determined to raise the top rate of income tax. In stark contrast, the CDU are pressing ahead with their plans to introduce significant tax cuts, despite warnings from economic and financial experts about the dire consequences of spiraling state debt.

During a recent congress meeting for Trade and Cooperation held in Berlin, Germany’s Finance Minister and SPD party member Peer Steinbrück resolutely dismissed the idea of introducing further tax cuts, insisting that election promises made by other parties could simply not be financed.

According to Steinbrück, the tax pledges embedded in the CDU's tax policy are “unrealistic,” particularly given that State debt is set to reach in the region of EUR320bn in the next legislative period.

SPD budget expert Carsten Schneider also confirmed recently that there is no scope to implement tax reductions, stating that the emphasis now should be on the question of how to repay public debt. Increasing the top rate of income tax was inevitable, he added.

However, while the Social Democrats and others have ridiculed the Union’s tax cut proposals, the CDU have been equally scathing about the SPD’s plans.

Indeed Bayern’s Finance Minister Georg Fahrenschon expressed his belief that to raise taxes would prove disastrous given the current economic climate. Reiterating that the burden borne by individuals must be further reduced in order to stabilize private consumption, Fahrenschon revealed that in reality, the Union’s tax cut plans only amounted to a slight increase in State burden of around EUR15bn.

Among the key pledges firmly embedded at the heart of the CDU’s election program is the commitment to reducing the first rate of income tax from 14% to 12%, and to progressively increase the threshold for the top rate of income tax to EUR60,000.

Nevertheless, the party remains deeply divided on the issue of a specific timeframe for implementation of these proposed tax cuts. While German Chancellor and CDU party leader Angela Merkel has recently confirmed that the tax reductions are planned from 2011 to 2013, Bavarian sister party the Christian Social Union remains equally determined to adhere to its “Sofortprogramm”, which aims to implement tax reductions as quickly as possible.

The SPD intends to increase the burden on top earners, who account for approximately 1.5% of all taxpayers in Germany. Not only is the party eager to lower the threshold for the top rate of income tax (42%), but it is also currently examining a proposal to reintroduce wealth tax. Additionally, the SPD is eager to introduce a stock market sales tax, levied on stocks and shares.

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